1. Field of the Invention
This invention relates to a method and system for entertainment production financing. More particularly, this invention relates to a method and system that simultaneously provides (1) the general public with an on-line investment opportunity to purchase securities whose return, if any, is based on the performance of entertainment productions distributed by major entertainment companies; (2) the general public with an on-line investment opportunity requiring only a very modest investment amount that is proportionate to the investor's financial capacity to absorb risk; and (3) major entertainment companies with the opportunity to secure significant amounts of guaranteed equity-based financing for a significant number of entertainment productions on a cost efficient basis through a system (described herein) involving a new source of equity capital from the general public which has not been available prior to this invention.
2. Related Art
The business of producing, distributing and exploiting entertainment productions, e.g., motion pictures, television and cable programming, music, videos, video games and digital entertainment programming (“Entertainment Productions”) is subject to a high degree of risk. This is because the cost structure for producing Entertainment Productions is high and heavily front end-loaded, whereas the revenue structure for the distribution and other exploitation of Entertainment Productions is back-end loaded and speculative (since it is highly dependent on public tastes and attitudes which are unpredictable and which are subject to sudden change for a variety of reasons, including the availability of other competing Entertainment Productions and other types of entertainment).
The production, distribution and exploitation of Entertainment Productions requires the commitment of multimillion dollar expenditures based largely on a preproduction subjective evaluation of the commercial potential of a proposed project (typically determined years before the completion and distribution of the project). These production costs, as well as the costs of marketing and distributing Entertainment Productions, have increased significantly in recent years and at a rate faster than the general rate of increase in revenues generated from the distribution and other exploitation of Entertainment Productions. This is because of a multiplicity of factors beyond the control of producers of Entertainment Productions, including ever-increasing compensation demands of creative and artistic talent, scarcity of commercially viable intellectual properties, intense-competition among producers and distributors of all forms of entertainment products, the increasing number of entertainment products, and the increasing diversity of different types of entertainment, all vying for the leisure time spending of the consuming public.
As a result of these and other fluctuating, unpredictable and subjective factors, a significant percentage of Entertainment Productions annually produced and distributed by major entertainment companies (as well as smaller independent production companies) are unprofitable after taking into account the relevant production costs, distribution fees, distribution, marketing and promotional expenses, contingent compensation payable to creative and artistic talent, amounts payable under applicable union agreements and interest expenses.
In order to manage the risk inherent in the business of producing and distributing Entertainment Productions, and in particular, motion pictures, the major entertainment companies have resorted to a wide variety of risk mitigation strategies, principally the “Portfolio Strategy,” and the “Risk Transfer Strategy.” The “Portfolio Strategy” is based on historical performance of a large number of Entertainment Productions over a long period of time. This strategy assumes that there is a high degree of statistical probability that if a major entertainment company distributes a sufficient number of Entertainment Productions (i.e., a “Portfolio”) on a continuous basis over a long enough period of time, the entertainment company will, on average over the long-term, derive enough aggregate profits generated by the proportionately fewer of its profitable Entertainment Productions in its Portfolio to at least absorb the cumulative losses generated by the proportionately greater number of unprofitable Entertainment Productions in its Portfolio.
Because the Portfolio Strategy mitigates, but does not transfer, risk, the major entertainment companies have consistently sought to finance a portion of the production cost of their Entertainment Productions (principally motion pictures) on a risk-sharing basis through a wide-variety of financing transactions. These transactions, referred to as “Risk Transfer Strategy Transactions,” are designed to shift economic risk of loss of one or more Entertainment Productions to investors in exchange for a share of the potential economic benefit generated by the commercial success of the particular Entertainment Productions financed.
Historically, and because of practical market considerations and cost and other constraints on the ability of equity arrangers to efficiently and economically access and aggregate capital for the financing of Entertainment Productions to the general public, the opportunity to invest in these Risk Transfer Strategy Transactions has been limited to strategic and institutional investors and high net worth individuals. Risk Transfer Strategy Transactions have been unavailable to the general public for investments in small amounts. Moreover, only a small portion of the general public, meeting certain financial standards, have been able to invest in Portfolio Strategy Transactions, which still required minimum investments of several thousand dollars and a payment period of several years to realize a potential return of the investment.
Thus, to date, major entertainment companies have been deprived of the ability to utilize modest investments made by large numbers of the general public as a source to provide financing to fund the cost of Entertainment Productions. Likewise, the general public has been deprived of the opportunity to invest very modest amounts in securities which would pay returns based on the performance of one or more Entertainment Productions produced and distributed by major entertainment companies and also on an economic basis proportionate to the investors' financial capacity to absorb risk.